Small cap stocks held up (generous term here) well versus large cap stocks last week. The Russell 2000 (RUT) was down 4.61% while the large cap focused Russell 1000 (RUI) lost 5.73%. The drop for RUI was the biggest one week lost since mid-September 2011. For the year RUT and RUI are down 3.98% and 3.89% respectively. I’m going to say that’s a tie with just over four months to go.
With RUT holding up relative to RUI small cap risk, as measured by the CBOE Russell 2000 Volatility Index (RVX) did not rise as quickly as the CBOE Volatility Index (VIX). VIX was up a record 118% last week while RVX gained ‘only’ 63%. The result of this price action shows up in the RVX / VIX premium chart below. The right side of that chart reminds me of the Millennium Force roller coaster I rode with my eight year old a couple of weeks ago – a violently quick drop.
I mentioned above that the last time we saw a big Russell 1000 drop was in September 2011. It has been a while so I felt like a small history lesson on 2011 was in order. The chart below shows the weekly price changes for RUI in 2011. I’ve highlighted a couple of data points for emphasis.
Note that September drop was preceded by a couple of other pretty bad weeks for the equity market. We have been so conditioned to buy that dips due to the market action over the last three years or so I felt the need to note that always doesn’t work. This is in no way a prediction, but just a warning of what can happen.